Gold futures drop for third straight session

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SAN FRANCISCO (MarketWatch) — Gold futures settled lower Monday, extending their decline to a third-straight session, as investors continued to weigh indications that the U.S. Federal Reserve may end quantitative easing this year.

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Gold’s likely to trade in a short-term range “between $1,630 support and $1,690 resistance,” said Jason Rotman, president of Lido Isle Advisors in Newport Beach, Calif.

“We have a bearish-neutral outlook at this point,” Rotman said, noting that the Fed minutes of the central bank’s December meeting, which suggest a potential winddown or end this year to the third round of quantitative easing, are “very bearish for the gold market.”

Gold futures have tallied a loss of $42.50 an ounce, or 2.5%, over three trading sessions.

Minutes from the Fed’s meeting, released Thursday after the Comex close, showed that several officials thought the central bank will be able to slow or end bond purchases before December this year. Quantitative easing is a major source of liquidity that weakens the U.S. dollar and helps support prices of a range of assets, including gold.

The dollar index
DXY, +0.04%
strengthened following the release of the minutes, ending last week with a gain of 1%, putting overall pressure on dollar-denominated gold, which lost 0.4% last week.

On Monday, the dollar index, which tracks the performance of the greenback against a basket of other major currencies, gave back some of those gains, pulling back to 80.242, from 80.440 late Friday. Read: Dollar rebounds with eyes on Fed outlook.

Uncertainty and bearish bets

The short-term outlook for gold and silver “remains uncertain,” wrote Julian Phillips, contributor and founder at GoldForecaster.com, in a note.

The U.S. fiscal cliff of spending cuts and tax hikes was resolved at the very last moment, but “with the debt ceiling still to be resolved and spending cuts still to be finalized, there is far too much political mileage to be had yet again,” he said.

And for gold, “depending on whether you’re looking to sell or buy, blame or thank Western hedge funds,” said Adrian Ash, head of research at BullionVault. “It’s not quite consensus yet, but the bear tack on gold prices is fast-gaining popularity amongst leveraged traders.”

As a group, leveraged traders have “doubled their bearish bets in the last three months, and cut their bullish bets by almost one quarter,” Ash said, citing data from the U.S. Commodity Futures Trading Commission.

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Gold seesaws after two-session drop of almost $40 an ounce.

In China, however, five weeks before Chinese New Year, trading of physical bullion contracts on the Shanghai Gold Exchange has jumped to record levels, he said.

In mining news, Harmony Gold Mining Co.
HMY, +5.60%HAR, -0.82%
said Monday its Kusasalethu gold mine in South Africa will remain closed until it is viable to operate safely and profitably. The decision follows labor unrest at the mine. The firm also said that as a result of the closure of the mine, it will produce only 1.2 million ounces of gold this financial year, rather than the 1.3 million ounces it had previously forecast.

“Admittedly, this is unlikely to have any great impact on prices; we view gold primarily as a monetary asset or as insurance — yet it does reveal that rising production costs can offer gold as a commodity a degree of downside support,” analysts at Commerzbank wrote in a note to clients.

In other metals trading, silver was the lone gainer.

March silver futures
US:SIH3
rose 14 cents, or 0.5%, to end at $30.08 an ounce, though they finished well off a high of nearly $30.48.

April platinum futures
US:PLJ3
fell $2.20, or 0.1%, to $1,556.30 an ounce and March palladium futures
US:PAH3
fell $18.50, or 2.7%, to $670 an ounce. March copper futures
US:HGH3
shed nearly 2 cents, or 0.4%, to $3.68 a pound.

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